Study: New HFs Make Investors Wait Longer To Redeem

Feb 27 2014 | 1:38pm ET

A recent study suggests the power dynamic between investors and hedge fund managers is shifting, with new managers making investors wait longer to redeem their holdings.

In its latest annual New Hedge Fund Study, law firm Seward & Kissel reveals 89% of new funds (up from 64% in 2012) restricted redemptions to a quarterly or longer-term basis.

And after all the post-crisis talk of increased liquidity, only 11% of funds allowed monthly redemptions in 2013, compared to 36% 2012. Moreover, the number of funds employing “hard lock ups” (usually one year in length) rose from 8% in 2012 to 27% in 2013.

But managers' increased leverage may have its limits—the report also shows the average hedge fund management fee fell slightly in 2013, from 1.688% to 1.663%, with the median fee holding at 1.75%. 

As in 2012, the management fee numbers revealed a distinction between funds pursuing equity-related strategies and those pursuing non-equity strategies.  Funds with non-equity strategies again imposed higher management fees, although the rate disparity between the strategies narrowed as the mean management fee for non-equity-strategy funds decreased to from 1.95% to 1.825% while the mean management fee for equity strategy funds decreased less (from 1.67% to 1.58%).

Equity-related strategies continued to predominate in 2013, accounting for 65% of all funds, compared to 64% in 2012.

The study also noted that 43% of new funds received some form of founders capital; that management fees imposed on founders class investors were, on average, 30 basis points lower than those imposed on flagship classes; and that the average incentive allocation was 16.1%.

Sponsors of both U.S. and offshore funds set up master-feeder structures over 90% of the time.  Most offshore funds were established in the Cayman Islands, although other jurisdictions (e.g., Bermuda, Bahamas) sought to re-establish their respective presences in the industry.

Said Seward & Kissel Partner (and lead author of the study) Steve Nadel, in a statement:

“The spread in management fees between funds that employ equity-related strategies and those with non-equity strategies, as well as the move towards tightened liquidity, have been particularly interesting findings of this study. The narrowing of the average management fee disparity between equity and non-equity strategies that we saw this year could indicate that non-equity hedge funds are offsetting the higher overhead generally required to implement their strategies through technological and other efficiencies. The toughening of liquidity provisions may indicate that managers are making adjustments necessary to efficiently manage and maintain their portfolios.”
 

 
 


In Depth

'Smart Beta' Funds In Regulators' Sights, Hedgies May Be Next

Mar 26 2015 | 11:11am ET

Funds that mimic strategies used by active managers for a fraction of the cost could...

Lifestyle

Study: Both Marriage and Divorce Lead to Negative Hedge Fund Performance

Mar 25 2015 | 6:51pm ET

Trouble at home leads to trouble in the market for fund managers, according to researchers...

Guest Contributor

The Life Settlement: Yield For The Investor And Cash For The Consumer

Mar 31 2015 | 6:48am ET

Investors are languishing in a yield-starved, low-interest rate environment, looking...

 

Sponsored Content

    Mar 9 2015 | 6:35am ET

    Kelly RodriquesKelly RodriquesAs more investors look to diversify, many are beginning to use retirement funds to invest in alternative assets such as private equity and real estate. Kelly Rodriques, CEO & President of PENSCO Trust Company, explains how companies can connect with those looking to use their retirement accounts in a different way. Read more…

Editor's Note